At the beginning of every year we often think about New Year’s resolutions and these often relate to finances.
Whether it is saving for a big holiday, a new home or thinking about future retirement – good financial planning can help.
An easy tax planning point would be to maximise your ISA allowances of £20,000 for the 2017/18 tax year before 05/04/18.
Every basic rate taxpayer can earn upto £1,000pa in interest before paying tax but this reduces to £500 for a higher rate taxpayer and £0 for an additional rate taxpayer, so if you are likely to exceed these levels then an ISA is a must.
Consider also what will happen if interest rates rise – saving in an ISA now could protect you from tax in the future.
The majority of taxpayers can have up to £40,000 of pension contributions (in total across employer and employees) each tax year. This annual allowance may be reduced if your earnings exceed £150,000, but there is other criteria which will influence the tapering reduction. These taxpayers will still have at least £10,000 allowance each year.
If you are in the position of utilising your annual allowance then you should ensure that your unused allowances from the previous 3 years have been utilised. If they are not used then they are lost.
It can be tax effective for directors of their own limited company to make contributions direct from the business to the pension fund, and this should be looked into with your IFA.
REGULAR GIFTS OUT OF SURPLUS INCOME
New inheritance tax rules came into play in April 2017 regarding the family home. The rules are quite complex and should be reviewed with your solicitor. However more simple inheritance tax planning can be done by making regular gifts out of surplus income.
These regular gifts (maybe by Standing Order) can be outside the scope of inheritance tax provided they are paid out of “surplus income” and not capital. You will have to demonstrate that you are left with sufficient income after tax and living expenses to continue your normal lifestyle.
There is no monetary limit on these regular gifts provided the above conditions are satisfied.
In addition to this is the £3,000 annual inheritance tax allowance where you can give away up to this amount each tax year, without it being added to the value of your estate.
You can carry forward any unused annual exemption for one year, so if you did not gift anything in 2016/17, do so now to avoid losing the exemption.
There are other ways of saving money such as cashback sites (topcashback and quidco are two popular ones) and some banks now allow you to “save your change” when making a payment by rounding up to the next £.
A key point is to create a tangible goal or vision, as this is more likely to make you consider your future and encourage saving.
Moore Accountancy are unable to provide specific financial advice, but can direct you to an IFA if you want to discuss any of the above in more detail.